Has FASEA already decided direction of Standard 3?
Despite the education authority announcing it is consulting on the unworkable Standard 3 of its code of ethics, its wording in its consultation paper suggests it prefers the second option, or would unlikely err too far from it, according to the Association of Financial Advisers (AFA).
Speaking to Money Management, AFA general manager for policy and professionalism, Phil Anderson, said the association was pleased the Financial Adviser Standards and Ethics Authority (FASEA) were finally consulting on changes to the standard as it was currently unworkable.
On Tuesday, FASEA said it was considered amending Standard 3 regarding conflicts of interest and outlined three wording options of the standard.
However, Anderson pointed to wording in the consultation paper that suggested FASEA was in favour of the second option.
It said: “Although FASEA considered all stakeholder feedback, FASEA has decided not to explore feedback that was not supported by stakeholders in previous consultation processes or not aligned with the Governments and/or FASEA’s intention.
“In particular, the draft wording of Standard 3, as prepared for the version of the code consulted on in November 2018, was considered but ultimately rejected as an option. FASEA has a settled commitment to the principle, confirmed by the findings of the Hayne Royal Commission, that advisers must not advise, refer or act in any other manner where they have a conflict of interest or duty.”
In the second option, FASEA was considering amending the Standard 3 wording to align it with Commissioner Hayne’s findings.
The second option read: “You must not receive any benefit (whether monetary or non-monetary), nor enter into any relationship, that could reasonably be expected to influence the advice you give or the service you provide to your client”.
Anderson said the issue with the second option was that it was very focused on benefits and relationships and less focused on the client outcome.
“In our view, if the client gets the right outcome should we be overly focused on whether there's a small non-monetary benefit that might occur at some point in the relationship?” he said.
“Or that when we talk about relationships – this goes back to the issue of referrals where you've got a mutual referral arrangement where both parties have done comprehensive due diligence, and they are confident that the other party is a good party for our clients to deal with. We wouldn't want that to be an obstacle to them using those mutual referral arrangements.
“That's where the hesitancy is as that second one is seemingly much more definitive that you can't receive any benefit and you cannot enter into any relationship that could be reasonably expected to influence the advice you give, or the service you provide to your client. There's no room for managing those conflicts they seemingly have to be avoided.”
Anderson said the association preferred the first wording option but wanted to see a focus on “material conflict of interest or duty” and not to encompass anything minor.
He also said there needed to be more clarity around the word “inducing” in the first option.
“We’d like to the see the first option refer to a material conflict, and provide clarity as to what it really meant by inducing you. And that would obviously not include things like life insurance commissions where the advice complies with the best interest duty,” he said.
The three wording options for Standard 3 were:
- Option one: You must only advise, refer or act where you do not have a conflict of interest or duty, being that which could reasonably be expected to induce you to act other than in the client’s best interest.
- Option two: You must not receive any benefit (whether monetary or non-monetary), nor enter into any relationship, that could reasonably be expected to influence the advice you give or the service you provide to your client.
- Option three: Retain existing wording – You must not advise, refer or act in any other manner where you have a conflict of interest or duty.
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